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Piketty and the Petits Rentiers

April 25, 2014 8:05 pmApril 25, 2014 8:05 pm

Having expressed some predictable skepticism about elements of Thomas Piketty’s argument in “Capital in the Twenty-First Century,” I want to usher in the weekend by highlighting something significant I think that he gets right. His book, as the title suggests, is notable among recent treatments of inequality for its elevation of wealth and capital (as opposed to just income), and particularly for its discussion of the re-emergence of inheritance as a force for class stratification in the West. The book’s frequent references to 19th century fiction notwithstanding, Piketty concedes that there are likely to be fewer extraordinarily large estates (relative to the wealth of society as a whole) in 21st century Europe and America than there were in, say, his native France two hundred years ago. But he argues that there will be, and indeed already are, enough large-ish estates to return us to a state of affairs where wealth is channeled through patrimonies to a remarkable, quasi-Victorian extent:

… inheritance did not come to an end: the distribution of inherited capital has changed, which is something else entirely … since the total volume of inherited wealth has almost regained its previous level, it follows that there are many more substantial and even fairly large inheritances: 200,000, 500,000, 1 million, or even 2 million euros. Such bequests, though much too small to allow the beneficiaries to give up all thought of a career and live on the interest, are nevertheless substantial amounts, especially when compared with what much of the population earns over the course of a working lifetime. In other words, we have moved from a society with a small number of very wealthy rentiers to one with a much larger number of less wealthy rentiers: a society of petits rentiers if you will.

The index that I think is most pertinent for representing this change is … the percentage of individuals in each cohort who inherit (as bequest or gift) amounts larger than the least well paid 50 percent of the population earn in a lifetime … As the figure shows, in the nineteenth century about 10 percent of a cohort inherited amounts greater than this. This proportion fell to barely more than 2 percent for cohorts born in 1910–1920 and 4–5 percent for cohorts born in 1930–1950. According to my estimates, the proportion has already risen to about 12 percent for cohorts born in 1970–1980 and may reach or exceed 15 percent for cohorts born in 2010–2020. In other words, nearly one-sixth of each cohort will receive an inheritance larger than the amount the bottom half of the population earns through labor in a lifetime.

… Of course, there is nothing to prevent the inheriting sixth from acquiring diplomas or working and no doubt earning more through work than the bottom half of the income distribution. This is nevertheless a fairly disturbing form of inequality, which is in the process of attaining historically unprecedented heights. It is also more difficult to represent artistically or to correct politically, because it is a commonplace inequality opposing broad segments of the population rather than pitting a small elite against the rest of society.

Now this part of the argument in “Capital” has been singled out for particular criticism by some right-of-center reviewers — for instance, Daniel Shuchman in the Wall Street Journal, who complains that Piketty is widening his class war to include “tens of millions of working people” who don’t look anything like the idle rich (which is true, they don’t).

But that wider lens, taking in the petits rentiers as well as the super riches, also creates an unstated but important tension between Piketty’s analysis and one of the more popular recent liberal narratives about inequality, in which a very sharp distinction is made between what’s been happening with the 1 percent — or even the 0.1 percent — and the socioeconomic trends among the mass upper class writ large. In this “it’s all about the 1 percenters” narrative, the fact that recent income gains have been concentrated at the very tippy-top of the income distribution is taken as evidence that (often centrist) arguments about skill-biased technological change or (often conservative) points about social breakdown and upper-lower cultural divergence are a distraction from the real issue — which is the undeserved incomes of a relatively narrow group of the bankers and CEOs and hedge funders and the like, and not the widening divide between the professional class and the working class, between Belmont and Fishtown, or whatever terms of art you prefer.

Piketty’s book, as my colleague David Brooks suggests today, has ended up folded into that “we are the 99 percent” framework by some of its interpreters. But I’m not sure it completely belongs there. Indeed, insofar as he focuses on capital more than income, raises the issue of the petits rentiers and their increasing patrimonies, and — as in the quote above — explicitly talks about the 10 or 12 or 15 percent and not just the 1 percent, I think Piketty implicitly challenges that framework, and in the process raises much harder questions for his professional-class liberal readers … because he’s saying, in effect, that they too are the problem, they too are part of the anti-egalitarian trend, in ways that the comforting “we are the 99 percent” narrative doesn’t capture or admit. (I should note that Piketty’s inheritance data isn’t the only way that one might make this point about the mass upper class: Even looking at income alone, as Mark Rank pointed out in the Sunday Review last weekend, you see a fluidity in the upper reaches of the distribution, with about 12 percent of Americans moving into and out of the top 1 percent at some point in their life cycle.)

One can escape this “the professionals are the problem” conclusion to some extent, perhaps, by following reviewers like Robert Solow in The New Republic, who places the “rentiers” and super-rich “supermanagers” together in one camp, and then tries to distinguish them from “the larger body of salaried and independent professionals and middle managers.” But this distinction feels too neat: Sure, the category of professionals and managers is broader than the category of petits rentiers, but most of the petits rentiers are still likely to be professionals and managers, not idle toffs — doctors and lawyers and consultants and academics and well-compensated bureaucrats (and, yes, some journalists) who inherit money or real estate from their professional-class parents, or get gifts from those parents at key moments (when they’re house-hunting or college-shopping, most notably), and who pass on the fruits of that capital to their resume-padding, university-bound progeny.

And in addition to just discomfiting the liberal professional class a little bit more than does the “99 and 1″ narrative, I think that Piketty’s insight — and data — about this demographic offer something profitable for both liberals and conservatives to ponder on policy. For the left, recognizing that yes, the 10 percent as well as the 1 percent really are driving inequality is an important step toward reckoning with some basic obstacles facing the social democratic dream: Most specifically, that whatever happens to tax rates on the rich, no plausible tax code is going to fund the kind of safety net that most progressives want if it doesn’t touch Americans making (or inheriting) in the $100,000-$500,000 range — a demographic, it should be noted, that’s proven much more successful at resisting tax increases in the age of Obama than ave the true plutocrats above them. For all the progressive angst about big money corrupting democracy, in this sense, the power of the petits rentiers — and their willingness to vote Democratic only so long as they’re protected from tax increases — may pose as much of a problem for progressive policy ambition in the long run as the Kochs and Adelsons and all their works and donations. And if Piketty is right, that problem is only going to get worse.

For conservatives, meanwhile — and especially conservatives in the reformist and libertarian populist camps — the petits rentiers and their growing inheritances offer a useful way of thinking about what should be the right’s alternative to a purely-inequality-focused, Gini-coefficient-obsessed agenda. In different ways, depending on the author, smart conservatives often press the idea that unearned, government-subsidized privilege, rather than high incomes qua high incomes, should be what Americans worry most about, and that the most important thing an egalitarian society can do is remove obstacles to mobility rather than just cutting the tallest poppies down to size. The petits rentiers, in large ways and small, exemplify the former problem: On a range of issues, from how the tax code treats real estate to how elite cities are zoned to policies as various as health care and higher education and the state and local tax deduction, the mass upper class benefits from all kinds of effective subsidies that increase its members’ incomes and their estates … and that help pad the cushioning beneath the next generation so that, in effect, those children don’t have to choose 1 percenter careers to be insulated from downward mobility and deep risk. And because they’re so insulated and so numerous and increasingly crowded-together, they’re also arguably a bigger obstacle to upward mobility for everyone else than are the much less numerous very, very rich — both because they divert public resources (tax dollars, higher ed dollars, health care dollars, you name it) that could be spent building opportunities for others, and because they use those dollars to solidify their own positions in ways that leave fewer places for the talented-but-poor, or talented-but-merely-middle-class, to fill and take advantage of.

Piketty’s inheritance and gift data doesn’t capture every aspect of either of these phenomena. But it gets at something important about them, by bringing to light one of the sometimes-hidden advantages of upper class life — the way that having a grandparent help pay for your child’s private school or college, or knowing that a parent’s home has appreciated to a point that will reward you immensely when they pass away, creates advantages and forms of security that aren’t captured in income data alone … and that won’t disappear by just hiking income taxes somewhat higher on the very, very rich.

And of course I’d be remiss if I didn’t note that once you start considering hidden sources of capital, the cultural element in stratification comes back into play as well — the fact that there are more ways than just money to pass along crucial advantages, and more forms of capital that can be counted up in dollars, more ways than just wealth-accumulation to create a society in which your kind of people will thrive and other kinds of people won’t …

But yes, then we aren’t really in Piketty territory any more.

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About

Ross Douthat joined The New York Times as an Op-Ed columnist in April 2009. Previously, he was a senior editor at the Atlantic and a blogger for theatlantic.com. He is the author of "Privilege: Harvard and the Education of the Ruling Class" (Hyperion, 2005) and the co-author, with Reihan Salam, of "Grand New Party: How Republicans Can Win the Working Class and Save the American Dream" (Doubleday, 2008). He is the film critic for National Review.